The Fed chairman told a US Senate committee on Tuesday that if the central bank modified its guidance to markets, rate moves could follow at any meeting, as she prepared global investors for interest rate rises later this year.
http://www.ft.com/intl/cms/s/0/e7475446-bc34-11e4-b6ec-00144feab7de.html#axzz3SgPuTM78
The history is that monetary policy is not ultimately a very effective tool at solving real economic structural problems. It can try for a while but the problem then is that it's only temporarily effective, and when you can't do it anymore you get the explosion yesterday in the Swiss market.
One of the things I've tried to argue is look, if we believe that monetary policy is doing what we say it's doing and depressing real interest rates and goosing the economy and we're in some sense distorting what might be the normal market outcomes at some point, we're going to have to stop doing it. At some point the pressure is going to be too great. The market forces are going to overwhelm us. We're not going to be able to hold the line anymore. And then you get that rapid snapback in premiums as the market realizes that central banks can't do this forever. And that's going to cause volatility and disruption…
But if you think Germany is tough with Greece, you should see how it behaves at home.
The current dilemma now facing Europe is partly an outgrowth of Germany's own countrywide obsession with avoiding excessive debt.
It's a focus born out of long historical experience, which has helped to turn responsible spending into both a personal and a civic virtue. Germany is a place where cash remains king; some retail outlets, including IKEA locations, don't accept credit cards.
At the national level, the German federal government recently balanced the budget for the first time in 45 years. Starting in 2016, it will be bound by a constitutional measure restricting its borrowing, something known as the "debt brake."
The unwavering focus on fiscal discipline is a source of consternation for those who see Germany's debt phobia as unhealthy for Europe and for its own future. In an era of ultra-low interest rates, they say, Germany should seize the chance to borrow cheaply and use the funds to update its infrastructure and make an investment in long-term prosperity.
"We are not in a situation where the balanced budget should be the first priority," said Ferdinand Fichtner of the German Institute for Economic Research in Berlin. "It would make more sense to take a bit more money and invest in public goods."
But such arguments have found little traction so far within the German government.
After Anton Siluanov, the finance minister, laid out the government's long-promised "anti-crisis" package in a live broadcast on state television last week, economists unanimously dismissed as inadequate his laundry list of half-measures and a vague promise of a 10 percent budget cut.
"That plan is nonsense," the Russian oligarch Aleksandr Y. Lebedev said in an interview, describing it as throwing away money to rescue some of Russia's worst companies. "Lots of words and little specific."
President Vladimir V. Putin weighed in briefly, repeating that along with keeping tight control over government finances, "We need to change our economy's structure."
Yet a wide array of business owners, economists and former senior government officials said in interviews that they expected the Kremlin to react to the crisis the way it had in 2008, the last time it faced a precipitous decline in oil prices — with disaster management, but no fundamental changes.
"They are trying to get by, manage it strategically and hope that oil prices rise, hope they can make a few adjustments and it will all go away," said Kenneth S. Rogoff, an economics professor at Harvard University who recently attended a high-level economics conference in Moscow. "There is no appetite for fundamental reform. They are just going to wait."
The World Bank has projected the Indian economy to grow at 6.4% in 2015-16 from an estimated 5.6% in 2014-15. India's GDP is expected to surpass that of China's by 2017.'
The benchmark Shanghai Composite Index SHCOMP, -7.70% plunged 7.7% to close at 3,116.35, posting its biggest daily percentage decline since June 2008 . Prior to Monday's heavy loss, the index was up 4.4% for the month to date, extending gains after finishing 2014 with a sharp 53% advance.
The plunge in mainland China helped to push Hong Kong's benchmark Hang Seng Index HSI, -1.51% down 1.5%, with the Hang Seng China Enterprises — which tracks Hong Kong-listed mainland Chinese companies — off 5%.
The China Securities Regulatory Commission, the nation's top market watchdog, announced Friday that a dozen brokerage firms had been punished for violations of margin-trading rules after a two-week overhaul. Infractions included allowing customers to delay margin repayments by longer than currently allowed. '
http://www.marketwatch.com/story/china-stocks-plunge-amid-regulator-crackdown-on-margins-2015-01-19
For investors worried about growth in China and the world this year, the data poses two questions:
Will the soft numbers and expectations of further weakness force the central bank to pump hundreds of billions of dollars into banks system-wide to prop up growth? And if so, what does that mean for Beijing's attempts to reform its economy?'
Previously the GSE's bought only mortgages in which the buyer made 10 to 20 percent down payments. That was revised downward to 3 percent and even zero. Such subprime mortgages proliferated until in 2008 when they accounted for more than half of U.S. mortgages, 76 percent of which were on the books of the GSE's or government agencies such as the FHA.
This was in line with the policy priorities of the Clinton and Bush administrations. They hailed the increase of homeownership from the 64 percent that prevailed from the mid-1960s up eventually, and temporarily, to 69 percent.
They emphasized the importance of increasing homeownership by blacks and Hispanics who did not qualify as creditworthy under traditional credit standards, which were treated as superstitions.
The result was a house price bubble of unprecedented magnitude. Low-down payment mortgages inflated housing prices because buyers could afford a larger house with the same down payment. Above-average households, though not the intended beneficiaries of lowered mortgage standards, took advantage of them by converting inflated housing values into cash by refinancing their mortgages.
The problem metastasized into large financial institutions because of imperfect information and perverse government regulations. Fannie and Freddie classified as subprime only those mortgages they bought through traditional subprime lenders -- an action for which their officers were later sued by the Securities and Exchange Commission…
Could it happen again? Wallison points out that government regulators are once again reducing the credit standards for mortgage seekers. The argument, as in the 1990s and 2000s, is that traditional standards are misleading and unduly prevent low-income and minority households from buying homes.
Fannie and Freddie are now purchasing the large majority of mortgages and announced last month they would buy mortgages with only 3 percent down payments. The qualified mortgage standards laid down by HUD and other regulators in October allowed for mortgages with zero down payments.
That sounds like a recipe for another housing bubble -- and for mass foreclosures, which hurt the policies' intended beneficiaries -- and perhaps for another financial crisis as well. '
